Dealing with Dairy

A federal program is threatening milk and ice cream prices, which could impact c-store sales.

By Howard Riell, Associate Editor.

Even with all of the options that packaged goods manufacturers give consumers today—brands, flavors, package sizes, price points, promotions and much more—ice cream has remained a pretty simple retail category.

Enter the federal government.

In July, several national food trade associations voiced their opposition to a controversial new dairy program designed to periodically limit milk production that is included in the House Agriculture Committee chairman’s version of the Farm Bill.

Members of the associations—including the National Restaurant Association, the Food Marketing Institute, the Grocery Manufacturers Association, the National Chain Restaurant Association, the National Grocers Association and the National Frozen Pizza Institute—joined with consumer groups, state dairy associations and anti-tax groups to urge members of the House Agriculture Committee to support a bipartisan amendment, offered by Reps. Bob Goodlatte (R-VA) and David Scott (D-GA), that would remove the Dairy Market Stabilization Program, also known as supply management, from the Dairy Security Act. Critics claim that the bill, among other things, would raise consumer prices.

As the groups noted in a joint letter, “We have learned from past experience that government management of commodity supply and demand does not work. Restricting milk supplies will hinder growth in dairy markets and increase dairy product costs, leading to negative long-term consequences for dairy farms, processors, retailers, restaurants, consumers and taxpayers.”

Fear FactorThis legislation is something that convenience store operators need to keep an eye on. Jerry Slominsky, senior vice president of the International Dairy Foods Association in Washington, D.C., said additional costs from the Stabilization Program would be transferred right onto the consumer.

Slominsky pointed out that if the program was in effect right now there would already be limited milk supplies as part of the federal effort to raise prices. “The program hasn’t passed yet, so I can’t say within the next year it will have an impact. But the way it’s designed, it looks at the difference between milk prices and feed costs, which are your output and input for a dairy farmer. When their profit margins are being squeezed, the government wants to bring the supply down so prices go back up.”

According to estimates that have crossed his desk, Slominsky said that the supply controls would be in effect anywhere from 7-40% of the time, and cause prices to rise significantly as a result. “Ice cream is already relatively expensive, and your input cost for dairy product is going to go up. It won’t double it, but we’re talking anywhere from 5-10%.”

Many convenience store retailers are already voicing their opinions. “This bill is a massive concern,” said Amer Hawatmeh, president of St. George Oil in St. Louis, operator of six Coast to Coast convenience stores. “Ice cream already carries a high price point. This won’t help. It seems as this is just one more avenue for the government to get into our business.”

Government interference in dairy, as in tobacco and other products, stymies Hawatmeh. “I don’t understand how laissez faire still exists in this country. I don’t understand where the freedoms are,” he said. “The problem is these guys in Washington continue to make laws to govern us and how we behave. It’s just a matter of time until they start regulating what we wear on a daily basis. That’s where we’re headed.”

In respect to the business side of the dairy bill, Hawatmeh is also concerned about how higher prices will impact his customers. “A pint of ice cream is an indulgence customers love, but the price is up to $5.99 for a national brand. That’s too much in this economy, even for a treat like ice cream,” he said. “Anything that will drive up prices is bad for business and should not be introduced at this point and time.”

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